Having been involved in the employment background screening industry for so long one could say I have seen it all. I have seen class action lawsuits, congressional hearings, state hearings, and pundits slamming an industry they really don’t understand. Often critics don’t realize that there’s a loophole in the federal law (the Fair Credit Reporting Act) that was designed to help consumers but actually hurts them.

Employment background checks exist because organizations simply want to protect their interests. Hiring managers have a duty to insulate their employees, customers and clients from individuals who pose a risk to them or the organization as a whole. But many times the pre-employment screening process is questioned for a lack of accuracy or seen as a barrier for employment.

So where is the flaw? The Fair Credit Reporting Act was created to promote accuracy, fairness and privacy of personal information assembled by Credit Reporting Agencies (CRAs), including background screening companies. Consumer Reporting Agencies (CRAs) are defined as entities that collect and disseminate information about consumers to be used for credit evaluation and certain other purposes, including employment.

(a) In general. A consumer reporting agency which furnishes a consumer report for employment purposes and which for that purpose compiles and reports items of information on consumers which are matters of public record and are likely to have an adverse effect upon a consumer’s ability to obtain employment shall

(1) at the time such public record information is reported to the user of such consumer report, notify the consumer of the fact that public record information is being reported by the consumer reporting agency, together with the name and address of the person to whom such information is being reported; or

(2) maintain strict procedures designed to insure that whenever public record information which is likely to have an adverse effect on a consumer’s ability to obtain employment is reported it is complete and up to date. For purposes of this paragraph, items of public record relating to arrests, indictments, convictions, suits, tax liens, and outstanding judgments shall be considered up to date if the current public record status of the item at the time of the report is reported.

What’s the Difference?

Sections a(1) and (a)(2) offer two very different alternatives. Of the two choices, (a)(1) is flawed. I can assure you that my position on this is somewhat controversial. Consumers could be injured under section (a)(1) if the background screening company opts to send a notice to the job applicant instead of making sure the information is complete and up-to-date. Under this scenario, an employer makes a decision without knowing whether the information is accurate.

Section (a)(2) outlines a practice followed by many screening companies.. It helps consumers by requiring that a background screening company adopts procedures to ensure information is complete and up to date at the time it is reported. Personally, I respect firms that subscribe to this method because it means giving candidates a fair evaluation and at the same time allows employers to make a truly informed hiring decision.

Here is the rub: Contrary to what we have seen in some recent lawsuits, background screening companies don’t need to follow both (a)(1) AND (a)(2), just one of them! While (a)(1) is perfectly legal, it can lead to the wrong information being reported, and candidates being unfairly disqualified. It puts the burden on the applicant to then file a dispute, which in some cases, may be too late. Unfortunately, (a)(1) is sometimes chosen because the amount of time, effort and money saved by companies utilizing this method is substantial. In recent years we have seen a trend with CRA’s subscribing to both (a)(1) and (a)(2) which is perfectly fine, in fact some would say it’s the most conservative approach.

In the past few years we have seen countless lawsuits, including class actions against employers and background screening companies all stemming from the reporting of adverse information that does not belong to the candidate. The public record system itself is riddled with incomplete and sometimes inaccurate information. For example, many courts have eliminated Social Security Numbers (SSNs) from their public terminals to protect people from identity theft. In turn, not having this information makes it more difficult for us to accurately determine who a record may belong to. The result of this is that many times a record can only be reconciled with a full name, date of birth and sometimes an address of residence or other vital information. Unfortunately, those with common names can also share common dates of birth.

So what’s the solution?

First, I think the (a)(1) option should be eliminated from the FCRA, as it pertains to consumer reports. The best practice is to require background screening companies to be responsible and only report information they have verified as accurate. The FTC should make a decision and either require both or eliminate the first, contemporaneous notice.

Secondly, to best protect consumers, there should be better access to information. If records were updated accordingly and more identifiers were available, the false positives would drop significantly.

Third, employers need more training on how to properly follow the legal adverse action requirements set forth in the FCRA. Employers are required to notify consumers when a negative report will be used in an adverse hiring decision. Unfortunately, there are still some employers that don’t know this two-step process is required by law. I fear that consumers still don’t understand their rights, and employers may not understand their responsibilities.

Lastly, amend the FCRA so it also applies to companiesthat conduct background checks themselves (as opposed to just 3rd party background screening companies). Currently, the FCRA only applies when a third party is used; this really hurts consumers.

It’s very important to note that no recruiter or HR professional is sitting at their desk finding ways to not hire people, we all want to fill jobs and roles in our companies. We just want the right people in the right seats.

While this article touches on Federal Law there are also a myriad of State Laws that must be followed too. These are my opinions only and not legal advice, if you are interested in learning more, hit me up!